The sequester solution hiding in plain sight

The budget fights in Washington, D.C., and Annapolis are looking predictably ugly this year and are shaping up along familiar lines: Do we raise taxes? Do we sink deeper in debt? Which programs do we cut — and how deep? How can we fund public priorities like transportation and higher education?

Fueling these debates are automatic, across-the-board federal spending cuts that intentionally make no distinction between public priorities and wasteful spending, cutting both with equal abandon. The cuts to military spending are getting most of the attention, but the impact doesn't stop there. Food safety programs would be forced to cancel 2,100 safety inspections, the FBI and other law enforcement agencies would lose the equivalent of 1,000 federal agents, and 1.2 million disadvantaged students would lose education grants.

Fortunately, there are other solutions — one of which is hiding in plain sight. Should we really cut food safety, law enforcement and education while the nation's largest, most profitable corporations use loopholes to avoid the taxes they should be paying?

Many American corporations and wealthy individuals use complicated accounting tricks to take advantage of loopholes in the tax code, moving their U.S. income to shell companies in tax havens like the Cayman Islands. They pay little or no taxes on those profits, leaving the rest of us to pick up the tab. Each year, the federal treasury loses an estimated $150 billion in revenue to offshore tax havens.

This tax dodging contributes to our state's budget crisis as well. According to a recent Maryland PIRG report, Maryland taxpayers lost more than $966 million to offshore tax havens last year. That's almost enough money to provide the matching funds to get federal funding for the Red Line in Baltimore.

Closing these offshore tax loopholes should be an obvious first step to lessen our budget woes at both the state and federal levels. At the federal level, closing tax loopholes would generate more than enough revenue to offset the "sequester" cuts entirely.

Unfortunately, the use of tax havens has become standard practice in corporate America. At least 83 of the 100 largest publicly traded American corporations have subsidiaries in tax haven countries. That includes Bank of America, Goldman Sachs, Wells Fargo, and JP Morgan Chase — banks rescued by bailouts in 2008, courtesy of American taxpayers — which use a total of 551 offshore subsidiaries to avoid taxes.

A classic example of tax haven abuse is the common practice of registering subsidiaries in the Cayman Islands. With more than 85,000 companies registered there, it is one of the few territories in the world that has more organizations than inhabitants. Just last year, Facebook sheltered $700 million in the Cayman Islands. It's all technically legal, but it's definitely not right.

It's time for this free ride to end. These companies benefit from our nation's educated workforce, infrastructure and security, yet they do everything they can to avoid paying what they should. When corporations don't pay, they dump their tax burden on the rest of us, forcing us to make up the difference through cuts to public services, a bigger deficit or higher taxes.

Closing offshore tax loopholes should be at the top of every lawmaker's list. Reps. Chris Van Hollen and Donna Edwards of Maryland have demonstrated leadership by co-sponsoring the Stop Tax Haven Abuse Act in Congress, but the state doesn't have to wait for Congress to act. Lawmakers in Annapolis can take action to close tax loopholes here in Maryland as well. State Sen. Paul Pinsky and Del. Mark Luedtke are leading the way with bills to implement combined reporting, a tactic that would close some of these loopholes. With serious budget challenges before us, now is the time to put this form of legal tax evasion to rest.